SR75

WHEREAS, pursuant to Act 179, Session Laws of Hawaii 2004, Class H service was established within the Employees' Retirement System through the Hybrid Plan for public employees within the State; and

WHEREAS, eligible employees under the Hybrid Plan included:

(1) All new general employees, teachers, state and county department heads and deputies, sewer workers, adult corrections officers, water safety officers, emergency medical technicians, and visa employees hired on or after July 1, 2006;

(2) Members in service on February 28, 2006, who elected by March 31, 2006, to transfer to the Hybrid Plan;

(3) Members hired in March through June of 2006, who elected within thirty days to transfer to the Hybrid Plan;

(4) Vested Contributory Plan (Class A) members who return to service after June 30, 2006, and who elect within thirty days to transfer to the Hybrid Plan; and

(5) Nonvested Class A and all Class C members who return to service after June 30, 2006; and

WHEREAS, the Hybrid Plan specified the following employee contribution amounts based upon an employee's position:

(1) Six per cent for general employees and teachers; and

(2) 9.75 per cent for sewer workers, water safety officers, and emergency medical technicians; and

WHEREAS, general employees and teachers who are age sixty-two or older with at least five years of credited service or age fifty-five with at least thirty years of credited service are eligible for normal retirement benefits under the Hybrid Plan; and

WHEREAS, sewer workers, water safety officers, and emergency medical technicians who are age sixty-two with at least five years of credited service or any age with at least twenty-five years of credited service in their specific occupation, of which the last five years must be in that same capacity, are eligible for normal retirement benefits under the Hybrid Plan; and

WHEREAS, the annual service retirement allowance for Class H members is two per cent of the member's average final compensation multiplied by the number of years of Class H service; and

WHEREAS, at the time of enactment of the Hybrid Plan, the Employees' Retirement System indicated that the option to convert Noncontributory Plan service to Hybrid Plan service was contingent upon a ruling by the Internal Revenue Service on the issue; and

WHEREAS, the Employees' Retirement System requested a private letter ruling from the Internal Revenue Service to address specific tax issues that must be resolved prior to allowing the conversion of service credit; and

WHEREAS, the conversion of Noncontributory Plan service from the 1.25 per cent to two per cent benefit formula under the Hybrid Plan would be permissible under a favorable ruling by the Internal Revenue Service; and

WHEREAS, a favorable ruling by the Internal Revenue Service would also:

(1) Allow members in service on June 30, 2006, who transfer to the Hybrid Plan to convert all or a portion of their Class C service by paying the full actuarial cost for the service to be converted;

(2) Provide that the member's cost to convert Class C service to the Hybrid Plan based on the member's age and monthly base pay on June 30, 2006, and the years of Class C service to be converted;

(3) Allow employer pick-up provisions to defer federal income taxes to apply to payments made by payroll deduction; and

(4) Prohibit members who return to service after June 30, 2006, from having the option to convert their Class C service; and

WHEREAS, subsequently, in 2006, Congress passed the Pension Protection Act of 2006, P.L. 109-280, which, among other things, allows participants to purchase and convert service credit under governmental pension plans; and

WHEREAS, this law negates the necessity of obtaining a ruling from the Internal Revenue Service on the issue of the conversion of service credit by permitting Class H members to purchase and convert service credit from the Noncontributory Plan into Hybrid Plan service credit; and

WHEREAS, however, the Employees' Retirement System has indicated that due to its current heavy workload and difficulty in securing employees in temporary positions, as would be necessary for undertaking the purchase and conversion of service credit under the Hybrid Plan, implementation of a system to allow Class H members to purchase and convert service credit will not be feasible until the year 2010; and

WHEREAS, the Legislature is concerned that there may be current Class H members who are or will be eligible to retire and who wish to retire prior to the implementation of the system for purchase and conversion of service credit, thereby prohibiting them from benefiting from the new federal law; now, therefore,

BE IT RESOLVED by the Senate of the Twenty-fourth Legislature of the State of Hawaii, Regular Session of 2007, that the Auditor is requested to conduct a management and financial audit of the Employees' Retirement System to ascertain its current workload and staffing needs to determine methods and means by which the Employees' Retirement System may begin implementation of the purchase and conversion of service credit under the Hybrid Plan; and

BE IT FURTHER RESOLVED that the Auditor examine and evaluate the current workload issues, including the need for, cost of, and pros and cons relating to the use of permanent versus temporary positions to assist the Employees' Retirement System in completing its three major ongoing projects, including the implementation of the purchase and conversion of service credit under the Hybrid Plan; and

BE IT FURTHER RESOLVED that the Auditor develop recommendations for methods and means by which the Employees' Retirement System can implement the purchase and conversion of service credit under the Hybrid Plan in an expedited manner; and

BE IT FURTHER RESOLVED that the Auditor is requested to submit a report of its findings and recommendations to this body no later than twenty days prior to the convening of the Regular Session of 2008; and

BE IT FURTHER RESOLVED that certified copies of this Resolution be transmitted to the Auditor, the Chair of the Board of Trustees of the Employees' Retirement System, and the Administrator of the Employees' Retirement System.

	OFFERED BY:	_____________________________

Report Title:

ERS; Hybrid Plan; Audit

THE SENATE	S.R. NO.	75
TWENTY-FOURTH LEGISLATURE, 2007
STATE OF HAWAII